Carney in firing line over guidance, forex probe, in this week in Europe

The Bank of England governor faces the U.K. parliament’s Treasury Committee on Tuesday, in what could be his toughest public Q&A to date. The central-bank boss is up for quite a session — questions on the BOE’s new-and-improved(?) forward-guidance framework, the bank’s aggressive forecast on GDP growth and the latest twist in the escalating international foreign-exchange scandal should all turn up to put Carney to the test.

Plus, European finance ministers will fight for the spotlight at the Eurogroup/ECOFIN meeting this week, while industrial production data for the U.K. and the euro-area are also incoming.

Carney questions: The BOE became embroiled in the sprawling forex-rigging probe last week, when it suspended a member of staff. This came in a new investigation into allegations that central-bank officials “condoned or were informed” of manipulation in the $5.3-trillion-a-day currency market.

Unsurprisingly, the news wasn’t received well by British lawmakers. Andrew Tyrie, Chairman of the Treasury Committee, said he will lead questions to Carney on Tuesday, to dig into why the BOE’s oversight body wasn’t involved earlier in investigations. In a sign of the tone to come, Tyrie said the revelations had exposed the BOE’s “Byzantine” governance structure and weak board of directors. The questioning is likely to focus on whether the central bank’s officials turned a blind eye to manipulation in currency markets.

But more likely to get wider attention is Carney’s testimony on the bank’s recently revamped forward guidance. Six months after introducing the old interest-rate strategy, the BOE governor basically scrapped it in February. At that time, though, Carney didn’t really clarify what action the bank will take on its benchmark lending rate once U.K. unemployment drops to the 7% threshold — the main data point in the earlier guidance. The February meeting minutes didn’t shed any light, so the testimony could see Carney giving a bit more detail.

Also interesting to see will be how the BOE chief defends the bank’s bold, above-consensus forecast of 3.4% GDP growth in 2014. As a comparison, the International Monetary Fund in January hiked its 2014 growth forecast for the U.K. to 2.4%, from an earlier estimate of 1.9%.

Bottom line: Expect lots of Carney headlines in the Tuesday session. The hearing is now underway: Watch Parliament.tv here.

Eurogroup/ECOFIN meeting: A brace of European finance meetings hit this week. On Monday, the Eurogroup of euro-zone finance ministers gathers, followed on Tuesday by the wider ECOFIN meeting of European Union economic and finance ministers. While these talkfests rarely move the markets, any discussion on the mechanism for handling bank failures in the future is worth taking note of.

The Single Resolution Mechanism (the bank-failure framework), accompanied by a 55 billion-euro ($76 billion) contingency fund, makes up the next phase of the European Union’s banking-bloc project. If all goes to plan, the banking union will launch in November. But we’re still waiting for a breakthrough in the talks on the SRM, with German Finance Minister Wolfgang Schaeuble saying in late February that he doesn’t see a quick deal, according to Bloomberg.

Industrial-production data: The data calendar is relatively light this week: The only likely showstoppers are industrial-production figures for the euro zone and the U.K.

For the U.K., expect the January data out on Tuesday to reflect a very wet and stormy month, when southern England suffered record levels of rainfall and flooding. Analysts at HSBC see both industrial production and manufacturing output to come in below the December readings, with growth of 0.1% and 0.2% respectively, month-on-month.

For the euro zone, the analysts expect a rebound in industrial production after a disappointing 0.7% fall in December; they forecast a rise of 0.5% on the month. The data come out on Wednesday.

U.K. construction output: These January figures, due on Friday, are also likely to have been hit by the brutal weather. The construction PMI for January almost touched its pre-crisis record high, but the survey data are probably painting a bit rosier picture than the hard data.

Economists from Investec Securities said construction is probably the most vulnerable of the major sectors, so the heavy rainfall suggests strongly that the segment contracted during the month.

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